Can courts order a prohibition on the indemnity of civil penalties?Author : Sarah Wood (Special Counsel)

Employment Practices Liability

At the end of the year the High Court will hear an application about whether the Federal Court has power to prohibit another person from indemnifying a respondent for their liability to pay a civil penalty.

The question arises after Justice Mortimer of the Federal Court found a union organiser had breached the general protections provisions of the Fair Work Act 2009 by engaging in coercion against an employer. In addition to finding that a civil penalty against the individual was appropriate, the court further ordered the individual’s union be prohibited from paying the penalty imposed.

The Fair Work Act provides the Federal and Federal Circuit Court with wide powers to make orders where there has been a breach of a civil remedy provision. All of the general protections provisions of the Fair Work Act are civil remedy provisions. If the circumstances are appropriate, any person bringing a general protections claim may, in addition to seeking compensation, apply for civil penalties in respect of each breach.

Section 546 of the Fair Work Act provides the Federal and Federal Circuit Court with power to:

  • order a person to pay a pecuniary penalty that the court considers is appropriate if the court is satisfied that the person has contravened a civil remedy provision.

Section 545 of the Fair Work Act goes further and provides the Federal and Federal Circuit Court with power to:

  • make any order the court considers appropriate if the court is satisfied that a person has contravened, or proposes to contravene, a civil remedy provision (our emphasis).

Section 545 was relied on by Justice Mortimer to prohibit the union from paying the civil penalty on behalf of the individual. The reasons for making the order included the need for an individual to take responsibility for conduct found to be unlawful, and for that responsibility not to be allowed to be transferred.[1]

POWER TO PROHIBIT INDEMNITY CHALLENGED

The Full Court of the Federal Court disagreed with Justice Mortimer and unanimously found there was no power of the court to make such an order. Among other things, the Full Court was concerned that the power to prohibit indemnification would become a lawful source of power for other orders of a varied and broad kind that could intrude on the legitimate freedoms and rights of persons, whether they had contravened the Fair Work Act or not.[2] And nothing should be read into the fact the orders were made against a union who was also a party to the proceedings.

Justice Jessup sitting on the Full Court said:

  • It is, of course, irrelevant to the matter presently under discussion that the order which is challenged by the appellants was directed to the CFMEU, also a party to the proceeding before the primary Judge. If the power exists, it could be used to prevent anyone providing any kind of assistance to the person upon whom the penalty is imposed to enable him or her to more easily to meet his or her obligation to pay the penalty. The order could be directed to a friend or relative, for example. It could be directed to a bank or other financial institution. And, if the power exists, an order of this kind could be made notwithstanding that no party had asked for it to be made, since, unlike the position under s 546, under s 545 the court may make an order on its own initiative. Contemplations like this do not, of course, provide strong indications of legislative intent, but they do highlight the consequences of the construction for which the Director contended – consequences which are unlikely to have been anticipated.[3]

PENDING HIGH COURT DECISION

An obvious omission from Justice Jessup’s examples of how the order might apply to ‘anyone providing any kind of assistance to the person upon whom the penalty is imposed’ is an indemnity for a civil penalty under an insurance policy. But it’s at least possible, if the High Court overturns the Full Federal Court, that the Federal Court may have power to make similar orders prohibiting an insurer from paying a civil penalty under the Fair Work Act on behalf of its insured.

If the High Court holds the power to prohibit indemnity on civil penalties exists, it is likely to also provide some indication of the parameters of the power when it hands down its decision after the appeal later this year.

[1] Director of the Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union (No 2) [2016] FCA 436 (13 May 2016) at [200].

[2] Construction, Forestry, Mining and Energy Union v Australian Building and Construction Commissioner [2016] FCAFC 184 (21 December 2016) per Allsop CJ, at [13].

[3] At [61].

05/07/2017